Construction Material Prices Continue to Plunge in January

WASHINGTON, D.C., Feb. 17—Construction input prices fell by 0.6 percent during January 2016 according to an analysis of the Bureau of Labor Statistics Producer Price Index released today by the Associated Builders and Contractors (ABC). Construction input prices are down 2.7 percent from January 2015 and have now decreased on a year-over-year basis for 14 consecutive months.

The implication is that global deflationary forces have now been in place for well over a year, which has translated into growing volatility in many regional economies and in financial markets. Prices for inputs to nonresidential construction have behaved similarly, falling 0.8 percent on a monthly basis and 2.7 percent on an annual basis. Inputs related to energy—e.g., crude petroleum, natural gas, and unprocessed energy materials—plummeted again in January, contributing heavily to overall construction input price declines.

“A set of extraordinary circumstances has contributed to the ongoing decline in nonresidential construction input prices,” said ABC Chief Economist Anirban Basu. “Global commodity prices have been trending lower for months with limited, sporadic exception. The end of China’s construction bonanza has certainly contributed. Decreased demand for inputs to construction ranging from copper to iron ore has served to flood global markets with excess supply, leading to falling prices. Significant oil production among OPEC and non-OPEC nations alike has collided with flat demand, helping to push energy prices lower.

“With Russia and Brazil remaining in recession and with the Chinese economy continuing to slow, input prices are likely to remain low for quite some time,” said Basu. “While it is possible that prices will begin to rise, increases are likely to be gradual absent some coordinated action by producers to limit supply. Falling input prices certainly carry positives, but there are also large risks involved. Corporate bond defaults are up, particularly in the U.S. energy sector. Job losses continue among energy workers and several states are already in recession. These factors alone are unlikely to drive the economy into recession, but rising defaults could make capital more difficult to access going forward, which could limit construction starts.”

Four key input prices expanded in January on a monthly basis:

Nonferrous wire and cable prices expanded 2.1 percent on a monthly basis, but fell 5.2 percent on a yearly basis.